INVESTMENT MARKET COMMENTARY Q1 2018

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1 INVESTMENT MARKET COMMENTARY Q1 2018

2 INVESTMENT MARKET COMMENTARY Q Q AT A GLANCE TOTAL TURNOVER Q1 937 MILLION DUBLIN ACCOUNTED FOR 77% OF TOTAL TURNOVER TURNOVER BY SECTOR ANNUAL INVESTMENT TURNOVER % OFFICE 3% RETAIL 18% RESIDENTIAL BILLION Q % INDUSTRIAL 20% 0% MIXED USE OTHER PRIME YIELDS INVESTOR ORIGIN SECTOR Q4 YIELD TRENDING HIGH STREET RETAIL 3% CITY CENTRE OFFICE 4.15% RESIDENTIAL (PRS) 4% INDUSTRIAL 5.5% 26% NORTH AMERICA 20% MAINLAND EUROPE 19% MIDDLE EAST/ASIA 17% IRELAND 4% UNITED KINGDOM 14% OTHER/UNKNOWN

3 INVESTMENT MARKET COMMENTARY Q Dublin Landings TRANSACTIONAL ACTIVITY The opening quarter of 2018 saw a total of 937 million invested in Irish commercial property across 62 transactions, almost double the level seen in Q The largest transaction in the quarter was the off-market sale of the Eir HQ at Heuston South Quarter to an overseas investor for 175 million. This was followed by the forward sale of the Ballymore/Oxley Dublin Landings development to Triuva for 164 million / 3.9% NIY. The largest transaction in the quarter was the off-market sale of Heuston South Quarter to an overseas investor for 175 million Another significant transaction this quarter was the sale/forward sale of Chatham & King Phase 1 and 2 (pictured right), which Bannon sold on behalf of the vendor for a price in the region of 155 million. Chatham and King

4 INVESTMENT MARKET COMMENTARY Q SECTOR ANALYSIS RESIDENTIAL INVESTMENTS BY SUB-SECTOR Q % PRS 22% STUDENT ACCOMMODATION 2% HOLIDAY HOMES Offices remain the most popular asset class with almost 540 million invested representing 58% of total turnover for the quarter. This was boosted by two significant transactions, namely Eir s 21,000 sq.m. head office at Heuston South Quarter and the forward sale of Dublin Landings. With 23 office properties transacted in Q1 offices were the most dominant sector by both value and volume of sales. Mixed-Use was the second most dominant sector this quarter, with over 190 million invested accounting for 20% of total sales volumes. This was driven by the sale of the Chatham & King development in Dublin 2, acquired by Hines for 155 million. This sale included the existing South King Street development as well as the forward sale of Chatham Court, the second phase of the development which is due for completion in The Residential sector has now overtaken retail to become the third most dominant sector in Q as investment in PRS and student accommodation continue to grow in popularity. A total of 162 million was invested in the sector across 7 transactions, representing 18% of total turnover this quarter. Of this total, investment in PRS represented 76%, while student accommodation accounted for 22%. The remaining 2% of turnover was attributable to holiday homes. The largest residential property transaction was the off-market sale of the Elysian Building in Cork, acquired by Kennedy Wilson for 87.5 million. Retail investments amounted to just over 31 million in Q1. This was made up of thirteen sub- 5 million transactions, of which five were Bank of Ireland occupied buildings in various locations across the country. Industrial sales attracted over 12 million during the quarter, again all sub- 5 million with the largest being the sale of units 1-4 at 88/89 Furze Road, Sandyford for 4.4 million / 6.4% NIY. TOP 5 TRANSACTIONS Q1 PROPERTY SECTOR PRICE ACHIEVED NIY PURCHASER HEUSTON SOUTH QUARTER, DUBLIN 8 Office 175 million - Overseas Investor DUBLIN LANDINGS, DUBLIN 1 Office 164 million 3.9% Triuva CHATHAM & KING, DUBLIN 2 Mixed-Use 155 million 4.1% Hines THE ELYSIAN BUILDING, CORK PRS 87.5 million - Kennedy Wilson CUIRT NA COIRIBE, HEADFORD ROAD, GALWAY Student Accommodation 35 million 5.6% Exeter Property

5 INVESTMENT MARKET COMMENTARY Q LOT SIZES LOCATION Last year we noted that a small number of high value transactions accounted for a large proportion of overall turnover. This trend was more pronounced in Q with three transactions greater than 100 million accounting for 53% of total turnover. Conversely, while over half of all transactions in the quarter fell below 3 million, these only accounted for 6% of turnover. The average lot size this quarter was 15.1 million, representing a significant increase relative to the same quarter last year when the average lot size stood at just over 7 million. INVESTMENT TRANSACTIONS BY LOT SIZE Q transactions amounting to 937 million % 11 8% 1% 8% 5% 9% NUMBER OF TRANSACTIONS 3 % OF TOTAL TURNOVER % M+ 3 Transactions / 53% By Value 50M - 100M 1 Transaction / 9% By Value 20M - 50M 6 Transactions / 16% By Value 10M - 20M 5 Transactions / 8% By Value 3M - 10M 15 Transactions / 8% By Value 1M - 3M 21 Transactions / 5% By Value < 1M 11 Transactions / 1% By Value Of the 62 transactions in the quarter, 41 of these were located in Dublin, accounting for 77% of total turnover. Investment in regional locations is growing however with over 100 million invested in Cork this quarter (11% of turnover) and 68 million invested in Galway (7% of turnover). By comparison, Cork and Galway accounted for 8% and 3% of overall turnover in INVESTOR PROFILE Overseas investors continue to invest heavily in the Irish market, accounting for 69% of total turnover in Q1. American investors have been particularly active accounting for 38% of this. Irish-based investors were less active this quarter, accounting for 17% of total turnover compared with 26% in We are also seeing the emergence of investors from the Middle East/Asia with 175 million invested this quarter accounting for 19% of turnover. TURNOVER BY INVESTOR PROFILE % OF TOTAL TURNOVER 17% Irish 69% Overseas 14% Other / Unknown INVESTMENT TRANSACTIONS BY LOT SIZE transactions amounting to 2.33 billion. NEW IMAGE? 16% 15% % 3 3 7% 23 % OF TOTAL TURNOVER 30% 22% 9% 25 NUMBER OF TRANSACTIONS M+ 3 Transactions / 22% By Value 50M - 100M 3 Transactions / 9% By Value 20M - 50M 23 Transactions / 30% By Value 10M - 20M 25 Transactions / 15% By Value 3M - 10M 62 Transactions / 16% By Value 1M - 3M 95 Transactions / 7% By Value < 1M 55 Transactions / 1% By Value Elysian Building, Cork

6 INVESTMENT MARKET COMMENTARY Q RENTS & YIELDS PRIME RETAIL RENTS AND YIELDS YIELD MOVEMENTS RETAIL Q1 YIELD TRENDING GRAFTON STREET 3% HENRY STREET 3.25% PRIME DUBLIN SHOPPING CENTRE 4-4.5% PROVINCIAL SHOPPING CENTRE 6-6.5% Prime retail yields have remained at 3.0% on Grafton Street and Henry Street lagging by approximately 25 bps at 3.25%. The Skechers unit at 4 Henry Street is on the market this quarter guiding 8.35 million, which would represent an NIY of just under 4% but is expected to achieve in excess of this level. PRIME RETAIL PARK 4-4.5% PROVINCIAL RETAIL PARK 6-6.5% OFFICE Q1 YIELD TRENDING PRIME OFFICE RENTS AND YIELDS PRIME CITY CENTRE OFFICE 4.15% OFFICE WIDER CITY 5% % 6% 5% 4% 3% 2% 1% 0% Prime Grade A Rent (p.s.f.) All Risks Yield SUBURBAN OFFICE 5.5% INDUSTRIAL Q1 YIELD TRENDING PRIME GDA HIGH BAY 5.5% INDUSTRIAL 6% Prime Dublin CBD office yields tightened to 4.15% this quarter to a level just 40bps off the previous cycle peak. The most significant office transaction contributing to this was the forward sale of Dublin Landings for 164 million / 3.9% NIY. PRIME INDUSTRIAL RENTS AND YIELDS STANDARD GDA INDUSTRIAL 7-9% PRS/MULTIFAMILY Q1 YIELD TRENDING PRIME PRS (NET INCOME BASIS) 4% PRS GDA 5% % % 8% 6% Prime Rents (p.s.f.) % All Risks Yield % % Prime high bay industrial yields have remained stable at 5.5% The most recent prime industrial transaction was an off-market deal in Q at a reported 30 million / 5.5% NIY.

7 INVESTMENT MARKET COMMENTARY Q Elysian Building, Cork PRS/BUILD-TO-RENT OUTLOOK The emerging PRS / Build-to-Rent sector continues to expand rapidly and is now an established institutional asset class in Ireland should see the completion by Roundhill Capital of the Dublin Living portfolio for over 400 million with a large volume of other pre-sale/funding opportunities currently in process. With over 126 million invested in this sector in Q1 alone, compared with just 10 million during the same period last year, we expect investment turnover for this sector to continue to grow rapidly this year. Very much like the shopping centre sector, Build-to-Rent is not just a passive income play. These assets represent a living, breathing business where customer focus and brand development are at the heart of return maximisation. Heading into Q2 there is over 650 million worth of investment stock on the market, of which 33% is sale agreed. Investment turnover is forecast to again exceed 2 billion by year-end, with the residential sector and in particular the private rented sector expected to be key contributors. Rod Nowlan, Director, Capital Markets

8 Hambleden House Lower Pembroke Street Dublin 2 BANNON CAPITAL MARKETS TEAM Rod Nowlan Director rnowlan@bannon.ie David Carroll Divisional Director dcarroll@bannon.ie Alex Patterson Associate Director apatterson@bannon.ie BANNON RESEARCH CONTACT Kate Ryan Research Analyst kryan@bannon.ie Disclaimer: This report is published for general information and is not to be relied upon. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty or guarantee of same. Reproduction of any part of this publication is not permitted in any form without prior written consent from Bannon